Don’t mourn the Volcker Rule

Slate.com

Consumer advocates are outraged that bank regulators are watering down the Volcker Rule, said Felix Salmon. A cornerstone of the 2010 Dodd-Frank financial reform bill, the rule was meant to “force banks to rein in their risk-taking” by preventing them from making unsafe bets with depositors’ money. The big banks, of course, “didn’t like this” and have spent millions of dollars lobbying for changes. Last month, they notched a “significant victory,” persuading the Federal Reserve to water down some key requirements. Normally, this would be cause for concern, but if critics look closely, they’ll see that the rule’s new version has “much more potential upside, for those of

us who want more bank regulation, than the existing version.” Under the current Volcker Rule, banks have to offer proof that each specific trade is more than a speculative bet—that it either meets customer demands or acts as a hedge against risk. This case-by-case justification is not only “hard for the banks,” it’s also “incredibly cumbersome for regulators.” Under the revamped rule, firms will have to engage in less risky trading on “a bank-wide scale,” making regulation easier. Bank CEOs will also be “personally accountable for any lapses,” so it will be harder to blame “rogue” traders. “Even if the banks are getting what they want,” it isn’t “necessarily a step backward.”